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Patents and cumulative innovation: causal evidence from the courts

Author

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  • Galasso, Alberto
  • Schankerman, Mark

Abstract

Cumulative innovation is central to economic growth. Do patent rights facilitate or impede follow-on innovation? We study the causal effect of removing patent rights by court invalidation on subsequent research related to the focal patent, as measured by later citations. We exploit random allocation of judges at the U.S. Court of Appeals for the Federal Circuit to control for endogeneity of patent invalidation. Patent invalidation leads to a 50 percent increase in citations to the focal patent, on average, but the impact is heterogeneous and depends on characteristics of the bargaining environment. Patent rights block downstream innovation in computers, electronics and medical instruments, but not in drugs, chemicals or mechanical technologies. Moreover, the effect is entirely driven by invalidation of patents owned by large patentees that triggers more follow-on innovation by small firms.

Suggested Citation

  • Galasso, Alberto & Schankerman, Mark, 2015. "Patents and cumulative innovation: causal evidence from the courts," LSE Research Online Documents on Economics 61614, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:61614
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    File URL: http://eprints.lse.ac.uk/61614/
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    Citations

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    Cited by:

    1. Iain M. Cockburn & Jean O. Lanjouw & Mark Schankerman, 2016. "Patents and the Global Diffusion of New Drugs," American Economic Review, American Economic Association, vol. 106(1), pages 136-164, January.
    2. repec:eee:eecrev:v:94:y:2017:i:c:p:221-239 is not listed on IDEAS
    3. Joan Farre-Mensa & Deepak Hegde & Alexander Ljungqvist, 2017. "What is a Patent Worth? Evidence from the U.S. Patent “Lottery”," NBER Working Papers 23268, National Bureau of Economic Research, Inc.
    4. Mark Schankerman, 2015. "Patents Rights and Innovation by Small and Large Firms," STICERD - Economics of Industry Papers 54, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    5. Antonelli, Cristiano, 2017. "Digital Knowledge Generation and the Appropriability Trade-Off," Department of Economics and Statistics Cognetti de Martiis LEI & BRICK - Laboratory of Economics of Innovation "Franco Momigliano", Bureau of Research in Innovation, Complexity and Knowledge, Collegio 201705, University of Turin.
    6. Talia Bar & Brendan Costello, 2017. "Patent Validity Challenges and The America Invents Act," Working papers 2017-21, University of Connecticut, Department of Economics, revised May 2018.
    7. Czarnitzki, Dirk & van Criekingen, Kristof, 2018. "New evidence on determinants of IP litigation: A market-based approach," ZEW Discussion Papers 18-018, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    8. repec:eee:wdevel:v:99:y:2017:i:c:p:15-27 is not listed on IDEAS
    9. Stefano Comino & Fabio M. Manenti & NIkolaus Thumm, 2017. "The Role of Patents in Information and Communication Technologies (ICTs). A survey of the Literature," "Marco Fanno" Working Papers 0212, Dipartimento di Scienze Economiche "Marco Fanno".
    10. Galasso, Alberto & Schankerman, Mark, 2015. "Patents Rights and Innovation by Small and Large Firms," CEPR Discussion Papers 10968, C.E.P.R. Discussion Papers.
    11. Shai Bernstein & Emanuele Colonnelli & Xavier Giroud & Benjamin Iverson, 2017. "Bankruptcy Spillovers," NBER Working Papers 23162, National Bureau of Economic Research, Inc.
    12. Farre-Mensa, Joan & Hegde, Deepak & Ljungqvist, Alexander P., 2016. "The Bright Side of Patents," CEPR Discussion Papers 11091, C.E.P.R. Discussion Papers.
    13. Gamba, Simona, 2017. "The Effect of Intellectual Property Rights on Domestic Innovation in the Pharmaceutical Sector," World Development, Elsevier, vol. 99(C), pages 15-27.
    14. repec:eee:respol:v:47:y:2018:i:2:p:343-362 is not listed on IDEAS
    15. Alberto Galasso & Mark Schankerman, 2015. "Patent Rights, Innovation and Firm Exit," NBER Working Papers 21769, National Bureau of Economic Research, Inc.
    16. Billington, Stephen D. & Hanna, Alan J., 2018. "That's classified! Inventing a new patent taxonomy," QUCEH Working Paper Series 2018-06, Queen's University Belfast, Queen's University Centre for Economic History.
    17. Michael D. Frakes & Melissa F. Wasserman, 2017. "Knowledge Spillovers and Learning in the Workplace: Evidence from the U.S. Patent Office," NBER Working Papers 24159, National Bureau of Economic Research, Inc.
    18. Chen, Daniel L. & Yeh, Susan, 2016. "How Do Rights Revolutions Occur? Free Speech and the First Amendment," IAST Working Papers 16-51, Institute for Advanced Study in Toulouse (IAST).
    19. repec:eee:jeborg:v:137:y:2017:i:c:p:282-303 is not listed on IDEAS
    20. repec:eee:jbrese:v:88:y:2018:i:c:p:357-362 is not listed on IDEAS
    21. Shai Bernstein & Emanuele Colonnelli & Xavier Giroud & Benjamin Iverson, 2017. "Bankruptcy Spillovers," Working Papers 17-16, Center for Economic Studies, U.S. Census Bureau.

    More about this item

    JEL classification:

    • J1 - Labor and Demographic Economics - - Demographic Economics

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